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. Last Updated: 07/27/2016

Russia's Breadbasket Hit by Mafia, Marketing

KRASNODAR, Southern Russia -- So fertile is the black earth in Russia's southern breadbasket that farmers say if you plant a shovel, the handle will sprout leaves. On the Shtukanev family farm, this makes for a lavish spread come dinner: fresh chicken, potatoes, rice, bread, butter, spring dill, parsley and basil leaves, pickled tomatoes, eggplant, and, from the livestock, pure white sala, a thick hunk of salted pork fat that is considered a special delicacy here. Every morsel -- even the bottle of vodka brewed from local durham wheat -- is grown by the family members on their 36-acre farm. With a tractor, a harvester, few debts and higher yields than the collective farm he declared independence from two years ago, Vladimir Shtukanev, 34, is the model of the entrepreneurial private farmer Russian reformers envisioned. But Shtukanev has one big problem: He has no buyer for the harvest. The Soviet state distribution system is moribund, and Russia has yet to replace it with a free market to transport, wholesale and retail food. Part of the problem is the endemic chaos that has plagued Russia's transition to a rational economic system, a situation aggravated by runaway inflation. But equally to blame is the Russian mafia, which has fixed food prices in the big cities and, with threats and violence, prevents farmers from selling their produce cheaper. "Grave obstacles have appeared in getting food to the consumer," said Deputy Agriculture Minister Anatoly Kopylov. "One of the characteristics of this disorganized and chaotic market is its criminal nature." The Agriculture Ministry is so concerned it is organizing 800 wholesale food markets to link buyers and sellers in a "civilized" way, Kopylov said. As Russia lurches toward a free-market economy, nowhere have the changes been more jolting -- and more bewildering -- than down on the farm, where the fields are bountiful but the marketing is a nightmare. On paper, the transformation from the Communist command system looks sweeping. Russia now has 277,000 private farms that are home to 1.5 million people and span 29 million acres of land. More than 90 percent of the vast and notoriously inefficient collective farms have been turned into joint-stock companies in which workers have ownership and voting rights. In Krasnodar, more than 15 percent of these new agro-businesses have voted to fire the old Communist Party bosses, said Gennady Koltsev, the region's deputy administrator. "If the director loses the trust of his members, no local officials can save him," Koltsev said. As the economic crunch deepens, some farms have ousted two directors in three months, he said. Still, the 60-year legacy of collectivization cannot be dissolved by decree. Gone is what Russian land reformer Yury Chernichenko calls the "agro-gulag," a system that kept collective farm workers from leaving without permission and doomed them to decades of inadequate housing, health and education. But a host of complex, interrelated economic, organizational and psychological changes are needed before rural Russians can take advantage of their theoretical new freedoms: ? First, the 213 percent annual interest rate makes it impossible for most would-be private farmers to buy the equipment, fertilizer and seed needed to get started. Many who have borrowed money have gone broke. In 1993, 15,000 private farms went bankrupt, and the rate is accelerating, according to the Association of Russian Peasant Farms and Agricultural Cooperatives, or AKKOR. In Krasnodar, a number of former collective farms are also insolvent, but so far local authorities -- fearful that bankruptcy would mean unemployment for hundreds, if not thousands, of workers -- have managed to bail them out. ?Second, the decision to free energy prices has created a severe oil shock in the farm belt. As once-subsidized energy prices approach world levels, farmers suddenly cannot afford to fuel diesel-guzzling tractors, sowers and harvesters. Nor can they afford to purchase the cheap, petroleum-based fertilizers, herbicides and pesticides that they once lavished on their land. By early March, farms had only a third of the fertilizer and half the pesticides needed to defend this year's crop, according to government statistics. Environmentalists say this reduced use of chemicals is a blessing in disguise. But a meager harvest is nonetheless predicted. ?Third, prices for farm commodities are rising far more slowly than prices for industrial goods, a process that is fast eroding farmers' purchasing power. "Fuel prices are rising, but our prices are not," complained private farmer Vladimir Melnik, who along with 22 others formed a marketing cooperative in the Krymsk region of Krasnodar. A liter of diesel fuel costs 10 times what it did last year, Melnik said, but the price of a kilogram of potatoes has not even doubled. In 1992, a Krasnodar farmer could earn enough from selling 30 tons of tomatoes to buy two tractors, he said; today, those tomatoes would cover only half the price of one tractor. But what farmers complain of most bitterly is the lack of a safe, predictable market for their food. "It really is scary, but despite the fact that the markets are empty, it's still impossible to sell your produce" in Moscow, St. Petersburg and other large Russian cities, said Tatyana Vasilyeva, president of the local Krasnodar branch of AKKOR, which represents 16,680 private farmers. Highway robbers, traffic police who demand payola in exchange for free passage and payoffs to local gangsters make a mockery of a free market, she said. Vasilyeva told of farmers who drove a truck full of top-quality smoked ham to Moscow and tried to sell it for about $1.10 a pound -- less than half the going rate in the capital. Shops would only take ham on consignment, with money paid weeks or months later -- once inflation has eroded its value. "At the market, our farmers nearly got killed. The mafia would not allow them to sell it there," Vasilyeva said. In desperation, the farmers drove their truck to the AKKOR headquarters in Moscow to ask for help -- and sold their ham on the spot. "This ham was literally snapped up in a couple of minutes," Vasilyeva said. "People were buying as much as they could carry, because the price was ridiculously low. Still, none of the stores would take it." Melnik, the Krasnodar farmer, said his cooperative sent a truck of tomatoes to Moscow, but farmers were stopped at the outskirts of the city, where racketeers together with corrupt traffic police insisted that the contents of the truck be handed over at rock-bottom prices. "If you do get through, they tell you what price you can sell for, and no lower," Melnik said. The complaints of beatings, threats and price-fixing have been repeated by farmers from Siberia to central Russia. So was Melnik's conclusion: "It's just not worth going to Moscow." Russian Interior Minister Viktor Yerin said such problems are exaggerated. At a news conference, Yerin said police have cracked down on highway banditry, arresting about a dozen gangs of truck hijackers in recent months. But the minister also complained of the farmers' own passivity. Police have offered to organize protected truck convoys but have not had any takers, he said.